Life Insurance

In this section, we summarise the taxation treatment of different types of insurance. The tax implications can vary, depending on the reason the insurance is purchased and the person (or the entity) who owns the policy.

What are the tax implications of Life insurance?

Scenario

What tax concessions are available?

Are the benefits assessed as income?

Are the benefits subject to Capital Gains Tax?

Where an individual owns the policy on their own life and the premiums are paid by the individual for personal protection purposes

None

No

No, unless the recipient is not the original beneficial owner and acquired the policy for consideration’

Where an individual owns the policy on their own life and the premiums are paid by the individual’s employer

The employer may be able to claim the premiums and related fringe benefits tax (FBT) as a tax deduction.

No

(No as above)

Where a company, trustee of a trust, partners in a partnership or sole trader owns the policy for Revenue protection purposes

The company, trustee of a trust, partnership or sole trader may be able to claim the premiums as a tax deduction (provided a term insurance policy is used)”

Yes – the benefits are assessable to the company, trustee of a trust, partnership or sole trader at the applicable tax rate (provided a term insurance policy is used)

No

Where a company, trustee of a trust, partners in a partnership or sole trader owns the policy for Asset (debt) protection purposes

None

No

No, unless the recipient is not the original beneficial owner and acquired the policy for consideration’

Where the trustee of a superannuation fund owns a policy on the life of a fund member

The Trustee may be able to claim the premium as a tax deduction

Self-employed3 and other eligible people can claim their personal super contributions as a tax deduction.

Employees can arrange to make pre-tax (salary sacrifice) super contributions

If paid as an income stream, the income payments will be tax-free if the deceased (or the recipient) is aged 60 or over. Otherwise, the income payments less any tax free component will be taxable at the recipient’s marginal rate (less a 15% pension tax offset) until they reach age 60 from which time they will be tax-free.

Note: Only certain dependants are able to receive a death benefit as an income stream, These include a spouse, children under age 18, financially dependent children aged between 18 and 25, other financial dependants (excluding children), disabled children and people in an interdependency relationship with the deceased fund member.

Note:This taxation information is based on MLC’s understanding of current legislation and Australian Taxation Office practice as at 1 July 2012.
Our comments are general only. The taxation treatment may vary according to your individual circumstances and may not apply in all cases.

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This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, we recommend you consider, with the assistance of a financial adviser, whether the information is appropriate in light of your particular needs and circumstances.